KJK Links

Watch Your Language With Commercial Lease Guarantees

(“Say what you mean, precisely, or a judge
will decide what you meant” #7)

As established in other “Watch Your Language” articles for this
Blog, as a general rule, courts will uphold language in a commercial lease (and
ancillary lease documents such as assignments and guarantees), unless it is
contrary to statutory law or public policy. Because of this judicial deference
to lease language, you mustsay
what you mean, precisely, or a judge will decide what you meant. Failure to
follow this axiom left the landlord inBrogan v. Coughlin Servs., Inc.,
2014-Ohio-469 (10thDist.
Ct. of Appeals, Franklin County)without
an enforceable guarantee.

In Brogan,SES
Realty Co. ("SES"), as landlord, entered into a lease agreement with
Coughlin Services, Inc. ("Coughlin Services"), as tenant, for
property located on Schrock Road in Columbus, Ohio. Albert and Melody Coughlin,
the appellees signed a "guaranty of lease" agreement
("guaranty"). The guaranty was a "continuing guaranty," not
to be affected "by reason of any extension of time that may be granted by
the Landlord to the Tenant." There were a number of lease extensions (4)
between the original landlord and tenant. Thereafter, Coughlin Services (the
original tenant) sold its business and assigned its tenant rights under the
lease to a company we’ll call “Assignee A”, who subsequently assigned the lease
to “Assignee B”. Meanwhile, SES sold the building (and assigned landlord’s
rights under the lease to the plaintiff-appellants, Sean and Barbara Brogan.
When the Brogan’s tenant (Assignee B) defaulted, the Brogans attempted to
collect on the Guaranty originally given by the Coughlins. The Coughlins
refused to pay on the Guaranty and the Brogans sued. The trial court found that
the Guaranty was unenforceable, at least against the Coughlins, and the Brogans
then appealed to the 10thDist.
Ct. of Appeals.

The Coughlin Guaranty, provided, in pertinent part:“[the Coughlins] shall guarantee
the performance by Tenant, its personal representatives, successors and
assigns, of all covenants and conditions of the Lease Agreement to be performed
by Tenant."

The appellants (the Brogans) argued that the personal guaranty of
appellee Coughlin remained in full force and effect until the expiration of the
term of the lease which, by virtue of amendment, was still a year away (from
the filing date of the lawsuit). Even though there were two assignments of the
lease, the appellants used prior case law that established the lessee "is
still in privity of contract with the original lessor" and the assignment
"does not relieve the lessee of its express obligation to pay rent “.

Appellees, on the other hand, argued they had only promised to guarantee
the lease obligations of Coughlin Services, as tenant, and such tenant's heirs,
personal representatives, successors or assignees, namely, Assignee A. Assignee
B was not an assignee of the tenant (Coughlin Services), but an assignee of
Assignee A..

The 10thDistrict
Court of Appeals upheld the trial court’s decision in favor of the appellees
(the Coughlins). In reaching its decision, the court first cited prior case law
(including decisions of the Ohio Supreme Court) reinforcing our “Watch Your
Language” principle; namely that "[i]n
construing the terms of a written contract, the primary objective is to give
effect to the intent of the parties, which we presume rests in the language
that they have chosen to employ." The court then reasoned since Ohio
courts "construe guaranties, and releases thereof, in the same manner as
they interpret other contracts,” their job would be simply to interpret the
guaranty language.

In considering the terms of the guaranty, both the trial court and
the appellate court found the language to be "clear and unambiguous,"
and that "Coughlin's obligation to [appellants] for delinquent rent is
only triggered by his default as the tenant under the original Lease or the
default of Coughlin's heirs, personal representatives, successors or
assigns." In other words, the guaranty only guaranteed performance of the
tenant and the tenant’s assignee (Assignee A), not the assignee of tenant’s
assignee (Assignee B). The 10th district further distinguished this
case from the case argued by the appellees (Morse & Hamilton Ltd. Partnership v. Gourmet Bagel Co., 10th
Dist. No. 99AP-1253 (Sept. 29, 2000). “While Gourmet Bagel addresses
the relationship between a lessor and lessee following an assignment under a
lease agreement, that case does not deal with a guarantor relationship such as
the present.”

What is the moral of this story?Presumably, the original landlord intended
for the Coughlins to guaranty the tenant’s performance, as well as the
performance of all assignees down the line. Certainly, the Brogans thought
their guaranty would be enforceable against all assignees. However, the guaranty,
according to the court, did not grant the landlord (and the landlord’s
assignees) such rights. In other words, “Say what you mean, precisely, or a
judge will tell you want you meant.” Ohio commercial contract cases
are replete with their own warnings to “watch your language.” As aptly stated
by the 2nd District Court of Appeals (regarding guarantees) in a
recent 2013 decision: "It is well
established in Ohio law that a guarantor is only bound by the precise words of
his contract." As a result of these cases, guarantees must
specifically provide for whose obligations are being guaranteed, not just “the what”.

This blog is for informational and educational purposes only. We are not providing legal advice and using information published on this blog does not create an attorney-client relationship with us. You should not act upon information presented on this blog without seeking professional legal counsel as every situation is unique and should be evaluated on its own merits.

The information posted on this blog is provided on an "as-is" or "as available" basis. We are not perfect and make no warranty of any kind to you regarding the information provided. If you believe that certain content is inaccurate or false, please contact us so we can review the content and take steps to correct it as appropriate. We disclaim any liability for damages from use of this blog or its content.